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Tuesday, February 21, 2012

SPX Update: Another Proprietary Indicator Suggests Caution

On Friday, the market rallied up into the lower end of the Wave 5 target zone, but the short term charts seem to suggest a bit more upside still to come for Tuesday. Theoretically, this should be the last wave of this rally before a meaningful correction, and it appears likely that it will probably reach the high end of the target zone, in the range of 1370-1380 SPX, with an outside shot at 1385.

Once again, though, I'd like to remind everyone that the trend must be given the benefit of the doubt until proven otherwise. Since December, every time this rally has reached a possible reversal zone it's bounced around a bit and then plowed right through it. The central bank activity, particularly the activity of the LTRO's from the European Central Bank, have continually skewed the technicals and made analysis exceptionally challenging.

The technical indicators have been nothing more than twigs trying to divert a flood of liquidity.

Speaking of indicators, another one of my proprietary indictors has issued a sell signal, and I'm going to share the details of this one with you. This indicator measures the price ratio of the Nasdaq 100 (NDX) to the Dow Jones Utility Average (UTIL). This indicator effectively measures the level of "risk on" trading present in the market. When the ratio gets high, it means investors are piling into the high-beta NDX stocks while ignoring the more conservative utilities.

Since the demise of the NDX "superbubble" years (1999-2001, RIP), this indicator has worked very well, with a 75% win rate on sell signals. On the chart below, the SPX is in the bottom panel.

It's somewhat amazing how many indicators are now reaching levels comparable to those reached at the 2011 top. It will be quite interesting to see how this all looks in hindsight. These are indeed interesting times, with the unprecedented level of worldwide government intervention creating something of a paradox. Obviously, the central banks wouldn't need to intervene at all if the world was in good shape -- so the fundamental backdrop is clearly bearish. However, the fact that they're throwing tons of money around trying to fix all these problems has, paradoxically, created a bullish environment for equities.

At some point, one would think that these imbalances will need to revert to the mean -- but they can persist much longer than seems reasonable. As I've said before, my personal twist on Keynes observation is, "The market can remain insolvent a lot longer than you can stay rational."

The next chart is the S&P 500 (SPX), which seems to be completing the fifth and final wave of this leg of the rally. The charts currently indicate that a correction from these levels could take the market back into the range of the high 1200's to low 1300's. Those levels will of course change if no correction materializes here.

In any case, that's in the future -- at present, there are several good arguments favoring the fifth wave interpretation, including the complexity of the previous wave(s). Fourth waves are notoriously challenging, and on the 5-minute chart, we can see how much back and forth noise was produced since February 8.

The next chart is the 10-minute SPX chart, which shows all the math toward arriving at the conclusion that this is the fifth wave up.

The final chart simply illustrates some of the trend lines and channels on the Dow Jones Industrials (INDU). It also highlights the first crack that's appeared in the trend.

In conclusion, this does appear to be the fifth wave up we've been looking for since February 9. The one minute charts suggest 1370-1380 as the target zone... but the trend remains intact, and I continue to suggest not front-running a turn by anyone but the nimblest traders. This rally has produced upside surprise after upside surprise, so all we can do at this point is be alert to the possible reversal zones, and see if the prices validate them by breaking down from the trend -- or not.

The 2011 print high of 1370 should present next resistance, though I continue to believe that the market wants to break that 2011 high. We'll see if that's all it wants to accomplish for now, and if sellers finally decide to make a stand in this zone. Trade safe.

brought forward, "i think a gap down on Tuesday, Globex action o/n will be a good clue." a gap down will put in an Island Reversal, o/n Globex action is what I thought it would be, chop to down. Possible small bounce when gap fill is finally down, this 8:30 to 10 am period will be very telling. any large bounce at gap fill destroys the previous call. think direction has finally switched to down tho, the EW4 move.

mistake found by Dust Devil in my calcs, DAY $SPX chart, I used opening price instead of high for EW1 calc. Good job DD.1267 - 1158 = 109 x 1.618 = 176.36 + 1202 = 1378.36 for EW3 top. do not know if doable, time around opening bell will be very telling

Good morning PL,glad to seee you are up and about; excellent.Overnight (synthetic) SPX and INDU were 1,370.6 and 13,042.So I think you've got your first SPX target nailed, maybe another 2 or 3 to come.. But 1380? That's a big ask.I guess time will tell.Kind regards,UKDNY

KInd of interesting how the Euro markets didn't seem to care very much about the "Greek Deal". I agree with Dennis Gartman that all it did was kick the can until the elections when the new government voted in by the people says screw Germany and we are dropping out of the Euro.

I have subscribed to Carlson for the last 30 days, and he's really "fudging" these Lyndsay cycles.He has literally "kicked the can" down the road from January 23rd to Feb. 3rd, to March 3rd.I'm not sure how valuable that can be to an active trader.At some point, you have to stop "fitting" your biasonto the charts, and admit that you are wrong.

Good morning matstery and DD,I'm taking the figures from the internet spresdbetting sites in the UK.I don't think you guys in the US can do that can you? Illegal or something. Anyway, I don't know for sure but I think the figures are a mixture of Futures, spreadbettors wagers, their eastern clients and a proprietary 'tweak'. They are usually correct in the direction of the move, but are often out by quite a ways from the eventual figure so 1370 could be easy, or a step too far. And once in a while they get the direction 180 degrees wrong!I wouldn't want to bet the house on it that's for sure, but as an indicator of how others are thinking, it could be useful.Hope that illuminates :)Kind regards,UKDNY

I have had a subscription to Ed Carlson for the last month and it's clear that he's "fudging" his George Lyndsay Cycle analysis.First it was January 23rd, then Feb. 1st as the last ditch date, and now it has become March 3rd.He appears to be desperately be trying to "fit" a market top before March 3rd so that hisfuture cycles (in the Fall) will not become invalidated. I don't know how anyone can trade the market that way, who actively trades. At some point, you are much betteroff if you just admit that you are wrong. But then, the "methodology" losescredibility. That's why some of these guys "fudge". They have no newletter subscription service if they don't "defend" their work,no matter how much they try and "fit" or "fudge" price action.

closed it at 1364, was expecting a bigger pullback than that after such a sharp rebound. Looks like it wants to go higher, but I'm standing aside. Lots of volatility and good volume is good topping action in general though.

Hi Pretz, was looking at the $WTIC action vs your long time picture. Looks to me it's trying to complete wave 2 of C with a KO of 113.92 (we are within 9% of it)... Is that how you see it also? Could that line up with the final top (complete B) in $spx?

FED releases the HAWKS to front run note auctions this week, beginning today with Koch... at 1pm today, Plosser on Wed. and Bullard on Thurs to talk down more QE, so the DOVES can be released at a later to talk it up again. News is noise but this news always seems to have an effect. As Katz pointed to earlier Gold was on the upswing this am towards $1760, but it will be interesting to see how it reacts this week after the HAWKS have their way. IMHO, gold is due for one more final correction in that $1350-$1550 before ramping up again.

The whole thing is a joke. When the parliament was voting, the head guy was giving a speech about democracy and the democratic process.....which was immediately followed by - and those who don't vote YES, must step down immediately LOL - I guess so much for democracy - it couldn't last past 2 sentences !

Good morning PL,they say ' never short a quiet market' so as this market is practically unconcious you are still be in with a chance of busting 1,370. It certainly feels dull and dreary like a 4th wave so, hang on in there. It just needs that sharp up thrust and you're there.We're all rooting for you!Kind regards,UKDNY

Hi Pl - couple of questions for you:Do you have an alternative long term count?Can a b wave of an a-b-c wave 2 retrace more than 100% of the a wave and hence make a new high?Where is the crude count at the momentTIA - ur advice is unrivaled for rookie traders like me

The Dow Theory non-confirmation signal occurred in late July when the Transports made a new high but the DJIA failed to. That preceded the July selloff. Right now we have the opposite situation. Who knows, many of us are short, but this thing looks like it's going to the moon.

1,000,000,000,000.00 in USD equivalent liquidity added to the financial system since October.Fundamentally, world trade is weak and US corporate earnings are past peak. No housing recovery. No job recovery.Market goes up on liquidity.

Your have labeled the rise as corrective, implying the larger move to be down. In commodities that would be deflationary. The markets keep rising on liquidity, inflationary for now. Perhaps when European defaults start rolling it that will change the trend.

Lots of speculation that the larger European economies will cut their losses on Greece and Portugal. That might allow them to focus all this liquidity on keeping the larger economies growing.

I was looking at the POMO for this week and it looks like the FED is taking liquidity out of the system this week. I know LTRO is due next week but this week might see increased vol. Just a thought. I still have a small TVIX in play at 17.67.

I want some Tvix also but just figured that with all this chop, plus the generally upward bias in stocks, I can get a better price for Tvix before Armagheddon arrives. I probably spelled Armagheddon wrong. lol

Even though AAPL broke the 50% (and also the .618) today, it stopped right at it's prior high that was made right after the 526 to 502 melt (that was 513.8). This still looks like a parabolic move that is breaking down to me. Only a solid move above 515 would negate that in my mind.

While obviously nothing is ever certain, a weak close today followed by a gap down wouldn't surprise me at all here. If 500 fails in the next day or two, I'm expecting a possible "look out below" fierce and fast downmove to the 450's (probably even a retest of the gap).

I agree with you and I am only holding till Friday. I expect next week to ramp up in the liquid fiat again. Just thinking I make a small profit this week and enter again around 16.50. No worries on the spelling. I am a horrible typist.

PL, in your previous post you commented kindly on my EWT "map" since 2007 peak. I'd like to thank you for those comments here, as we're now on the next post.

I see what you mean with the '09-'11 wave as a three (a,b,c) wave. Please ignore my incorrect nomenclature in this case (as I am still very limited in EWT). I now see that the entire wave 1-2-3 is more an "a", wave 4 a "b" and wave 5 a "c" (correction wave in other terms, right?). I don't try to be exactly correct, and you are certainly 1000x more correct than me. Just learning. Also, I based the lengths of the possible next wave 4 and wave 5 on the 2010 "wave 4" and the '10-'11 wave 5. I think you are right that things will not take as long as then or go as high, as the current waves 1, 2, and 3 have been much faster (and I was merely working with the available spave ;-) ). Either way, thanks for your input. Low 1400s late next month, early April!? Sure I believe so too.

What the FED does is alert their short list of friends when to take their profits off the table and or go short. The excess liquidity is then fed into Hampton estates, Yaghts, a chalet in Cannes, maybe the spare Lambo if they can work up the energy to swipe their Black Card.

Yeah, I think you guys are right. I wouldn't even think about shorting AAPL until I see at least the 6 day MA roll over. It's almost ready to do just that... but it hasn't done it yet. So... not yet. But check out that RSI. She's gonna roll over very soon:http://stockcharts.com/h-sc/ui?s=AAPL&p=D&b=3&g=0&id=p94693717659&a=257706301

But for me personally, I'm more interested in the ratio between AAPL and the NDX. Once that thing starts to head lower (whether AAPL is rising or not) the NDX will drop. http://stockcharts.com/h-sc/ui?s=AAPL:$NDX&p=D&yr=2&mn=8&dy=0&id=p83393755274&a=231555886

I agree. Just testing out this liquidity rollercoaster of the POMO. If we head lower the rest of the week then higher on the 27th then it may have correlated. On the other hand do you have any short straws I can grab.

here is chart ES/5 min. three tests, the usual is 2 to 4, and then the break. but big question, it this a retest of that yellow line and then down? or a set up for higher? my 120 says down BUT my 60 says up. look at that big price node up at the 64 area and down at 56.

Geez AR...You been waiting a long time for that Armageddon set-up. I betcha it's on your desktop isn't it LOL.... I triaged a guy a couple of years ago with a similar problem. That was a hell of an X-ray. I was supposed to keep a straight face the entire time I was typing up the triage note. I failed miserably.

I saw that too. This area feels very important to me somehow. Of course, we could open higher and then melt all day, but if I was a gambler, I'd have gone out short a little right here. I probably should have bought some puts right at the close.

I'd like to suggest a contest. Somehow we find out who the retail investor was that bought at the top today. Someone, somewhere placed an order today at 1 PM to purchase something which pushed the S&P 500 to 1367.76. I'd like to contribute to "repay" that individual for the purchase which will now stand as the peak for a few years. Anyone have an idea on how we could identify that retail investor...advertise?

Good afternoon Bob_E,May I ask, which top is in do you say?And - 'long drawn out', so you are expecting this next down move to be corrective after which SPX will move higher. And higher?Kind regards,UKDNY

Good afternoon Bob_E, May I ask, which top is in do you say? And - 'long drawn out', so you are expecting this next down move to be corrective after which SPX will move higher. And higher? Kind regards, UKDNY

Disqus generic email templateConfidence is relative...right. If one fears a trade, then one is apt to make a mistake. Elliott Wave presents possible scenario's...use them and take positions. Use mental stops if you feel "big brother" is watching you, but use stops to protect yourself. This is suppose to be fun.....if not, then one should not partake. Good fortune,

!. The Fed can raise the disccunt rate so banks have to pay more to borrow from the Fed. So they borrow less and may pay back some that they have already borrowed. 2. The Fed can raise the reserve requirements for banks, that lowers the total amount that banks can lend out so they will reduce the amount of new loans and may not renew some existing loans.3. The Fed can raise the prime rate which causes almost all other interest rates to go up. So persons//companies borrow less.4. When interest rates go up, savers save even more than they were saving.5. When savings increase and loans outstanding decrease, the amount of money in circulation is reduced. You can't spend it if you don't borrow it or if you save it. 6. When persons/companies see the Fed raising rates, they perceive a slowdown is coming in the economy and they cut back on their spending,/expansion, and /borrowing.

I first heard that report maybe 10 years ago. To this day, every time I read the word Armageddon I think "gerbil". And then I have to scramble to go find the link to that video so everybody can laugh as hard as I do every time I hear it, lol.

AAPL, DAY & 15Said that AAPL would go against the direction of the mrkt and it did. See the size of that oscillator? Powerful move, not nearly finished, no divergence, no magnet pulling this one down. This is how you combine two time frames to get a sense of what is next, the time frames tangent each other. Problem is to find the correct smaller time frame. Prolly a little sell off, see the ghost spikes, then the next move higher, 520-40 is what I get now, will hone in on the tgt better when the next AAPL rally starts. At this point I see the EW3 top a month out. Hope no one shorted this one as I suggested. On another subject, UUP needs to get up off it a$$ and get moving.http://www.screencast.com/users/katzo7/folders/Jing/media/a07fcc5c-1d92-4ae0-b98c-8f179531088c

I'd be very cautious about assuming an actual market top here. Going long at 1,367 would have been pretty dumb, but to assume it's a new top is not merited by anything we have seen thus far.

The eight point waterfall we saw just after 2 pm is pretty typical right after a newly printed high. And it was to be expected as a sell the news move on the Greece deal.

By 3 pm and after completing a nice impulsive five wave move down, longs stopped the declinewith little difficulty, as we have seen so often.

The long side's only goal heading into the close today needed to be to hold 1,360, which was accomplished easily. Until the market starts really testing lower ranges and crashing through them, I wouldn't assume yet that sellers can dictate this market much.

And all of THAT being said, I'm expecting tomorrow to be more of red candle kind of day. I think we still have more sell the news going on from the Greece announcment to come out of the woodwork. And smart buyers also like those down days now and then if they think we'll be having another leg back up after it's all over.

Good evening Random_Stone,FWIW wave 2 is most often a ZigZag in which case B can never be longer than A, therefore cannot make a new high. It's a Rule.However, if W2 is a Flat, particularly the commonest expanding flatwhich by definition must have B > A then the b wave of an a-b-c wave 2 will be greater than 'a' and make a new high.There is no rule I can find in the definitive book by Frost and Prechter to the contrary, but I'll have another look.(Could be very embarrassing if there IS one!)I'll have a look around and if I find such a wave I'll post it. You should really buy the book by the way, absolutely vital to the understanding of EWT.Kind regards,UKDNY

Thanks for the heads up Jump. On second thought, you're right, Josh Clark sure did ask the same question about Prechter enough times and on enough sites. He seems obsessed to get a particular answer he wants to hear. That 'might' be troll-like behavior. I'll keep an eye on it. Much appreciated.

Good evening direfighter,it usually is described as a 'fractured market' I think which heralds a turn, in this case, a bearish reversal.But maybe not yet as the INDU, SPX and both NASDAQs made new highs. (But not the Russ 2000) so maybe cracks are appearing? The european markets are not following the USA, so maybe another suggestion of a turn soon.Kind regards,UKDNY

The NYSE A/D Line was essentially flat today at 1500-1500.This indicator broke out to a new high ( previous high was early November ) back on January 10th.

It has been a CLEAR and confirming indication of the strong uptrend since late December, especially given the fact that the amount of Advancing issues has exceeded 1,000 on 34 out of the past 35 days since December 29th. This kind of move renders "oscillator" type technical indicators like RSI and Stochastics (just to name a couple) totally ineffective....giving numerous "divergences" along the way that only serve to "hook" more shorts into shorting. Moves off of major lows, (like the one that we witnessed back in early October) are very similar to those experienced back in 2009, 2003, 1998, etc. in which "oscillator" indicators give misleading signals at the same time that the A/D line continues to point and confirm the way.

"By insisting on its voluntariness [of a Greek default ...] the ECB may be putting the interests of the few banks that have written credit-default swaps before those of Greece, Europe’s taxpayers, and creditors who acted prudently and bought insurance. The final oddity of the ECB’s stance concerns democratic governance. Deciding whether a credit event has occurred is left to a secret committee of the International Swaps and Derivatives Association, an industry group that has a vested interest in the outcome." [Joseph Stiglitz]

And there you have it in a nutshell. The reason the credit default swaps never triggered is because those who make that determination are the same institutions who would get slammed when they 'do' trigger:

Nah, it contained a looooong link so Disqust did what it was supposed to do. It was a Walmart link for..."The Bushmaster M4A3 .223 REM 16" Patrol Carbine is a modern repeating rifle that offers reliable action and outstanding value." (Walmart's description)They weren't available in any of the local stores though. I had one, but it was lost in a boating accident.

Good evening RR,No-one knows yet if 'the' top is in so you are not alone. If you wait for confirmation that the top IS in (as urged by PL) THEN you'll be a lot more confident. Just be patient, you'll know when the trend has changed, PL will post it.Kind regards,UKDNY

ROFLMAO....For your acquired gerbil neurosis even more so than the links. When I asked the uncomfortable appearing patient where the "foreign body" was, his rather curt response was "Where do you think!" I had to excuse myself for a minute or two.

Good evening folks,FWIW 16 out of 17 European markets closed down today. The US markets closed down too bar the Nq100 which squeaked up a notch.So does this suggest an across-the-board decline is beginning?Kind regards,UKDNY

He's done that before and when I provide the "truth", he goes off on a wild attack trying to convince the readers that I don't even know how to read my own charts. Then proceeds to give himself a dozen "likes" for his attack. I mean the chart is right there. People can see it. They're not blind. The guy's simply a sociopath and not much else. But I'm certainly not going to get into any slinging of the mud here. I'll just mind my own business (except when he flat out lies like that because false information like that can be damaging to someone who doesn't know better) and let him hang himself.

Went short also...tried at 510 (62% retrace from recent low) but got stopped out. So tried again right a the close. Rationale: with new closing high, there should be renewed interest from "buy-the-dippers" to distribute to without much effort next couple of days. Looking for a retrace to 470 to then become a "buy-the-dipper" myself, unless of course the 4 of c of B becomes C itself.

Regarding 4 of c of B.. I keep thinking "The Theys" would want to set up a nice retrace this week to welcome LTRO next week (ie reset some of the indicators). I don't think "The Theys" would want to receive LTRO at extreme overbought conditions and risk a backfire waterfall into our beloved and much awaited-for-3-god-darn-it-loooong months wave C.

The thing about Anonymous is that all you have to do is say your Anonymous and that makes you so. If I were Greece, I'd be more worried about Civil Service Employees who just got their pensions, pay, or positions hacked. For some reason, I thinkbsomebody forgot that the folks who empty the waste bins in all of those pretty government offices have keys to all those pretty government offices.

Don't feel bad DD. I've run into people (in person) who wanted to know why I'm rather confident that the world is in a lot of trouble. When I start to tell them, and come to the part about the FED... they interrupt me and say: "The FED! What's that?". That's when I just turn and walk away.

The guy who invented those things was Arthur Fry who was with 3M. He got steenkin' rich off those babies, lol. Same deal for buddy who invented paper clips. Geez... what does the world need next that it doesn't already have?

It may not matter how overbought this already overbought market is...free money is free money....weeeee....Ain't it just crazy. And then you have to ask yourself where will the fake money go and how much of it there will be. I'm still convinced that the banks will stuff it under the ECB mattress for the coming rainy days (just like they did last time.) Remember that as we have seen, the impression of QE is just about as good as actual QE. They're damn good snake oil carneys.

There is an old fellow who lives in a nursing home who contributes on the 'other' site from time to time. He's going blind so he writes in CAPS. Wagner just now went onto Chartrambler's site and impersonated the old man. Can you believe that?

Agreed. Awaiting trend change before doing anything with big money but learned futures a few weeks back and have been trading the TF's ever since. Actually, been long a few times, seems strange. Been lucky enough to make money 14 out of 17 days but the 3 losses were ugly. Too bad it isn't just a win/loss and not cumulative. LOLPL is the best and Katz calls during the day really help. Today was difficult but squeaked out a decent profit.Good luck to you.

There are some strange folks on the streets. Hell, they even let me out once in awhile. But I don't make a habit of screwing with other people....Unless they're Canadians of course...then it's a fair fight.

TVIX traders.. looks like some news .. Credit Suisse temporarily suspends further issuance of shares.. due to limit size of the ETN in the rules. (volume went from average 4 million shares to 28 million in a week. I dont know if a split is coming, yet the shares and volume after hours are UP. almost 2%. anyone holding TVIX?

shortage of shares to come? will this supply and demand issue affect the price at all?? Could this news be known 2 weeks ago, hence the huge volume buying? or it is the other way round, which means the huge volume the past few weeks caused them to stop the issuance? any thoughts?

Another thought is since there is a HUGE amount of short interest in TVIX, now that there is less shares, would it make it harder for the shorts to cover in the future, thus causing a short covering squeeze in the near future??

Jerry Penacoli...that poor bastard...everybody knew somebody, who knew the best friend of the sister of the nurse who took care of him...I still don't know if it was true. But it don't matter...the story stuck.

Yep. I'm holding some TVIX ~$17.50 average price. Hmm... no new shares. I kinda don't like being in the wagon with everyone else. But if there is a scramble for the shares I may hold on for a couple of days to see what happens. There was a trade about 1.5 weeks ago for 880K shares @ ~$18.50 or so (after hours) if memory serves me right. I wonder if the buyer is still holding. Probably. I would expect that a position of 880K shares would be a hedge for a much larger market position.

Funny you mention "mental" stops. I can't tell you how manyt times I get stopped and the market reverses on my number. I like your idea and will do it unless I have to be away. I do think it is more than a coincidence that stops get picked off quickly then a reversal. Happened today even. Thanks.

All money is debt, so the only way money is removed from the system is via borrowers paying down debt. Although since all money in existence is only equal to the principal of all loans in existence, who knows where the money comes from to pay the interest on all those loans...I guess the money needs to evaporate during voluntary haircuts...

interesting. i remember that 880k shares u posted. i read on that ' vix and more' website and i thought i read there are 325 million shares.. cant recall exactly now. That news came out after close but still traded UP after hours.. at least it didnt go to $.001 :)

Unfortunately, AR has very poor reading comprehension.My post above was 100% factual in regards to the NYSE A/D Line.There has only been one day in the last 35 in which there were less than 1,000 advancing stocks during the day.

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